Fitch Affirms Victoria County, Texas' Limited & Unlimited Tax Debt at 'AA-'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--In the course of routine surveillance, Fitch Ratings affirms the 'AA-' rating on the County of Victoria, Texas' outstanding $4.24 million in certificates of obligations (COs) and $0.76 million in general obligation bonds. The Rating Outlook is Stable.

The 'AA-' rating reflects the county's very modest direct debt levels, rapid debt amortization, and strong fund balance levels aided by continuous tax base growth and surplus operations in the years prior to fiscal 2008. The rating also incorporates a moderate amount of taxpayer concentration represented by the plastics manufacturing and petrochemicals industries, and the moderate reliance on economically sensitive sales tax revenues. Recent general fund balance drawdowns have been driven by pay-as-you-go capital outlays which the county plans to reimburse with debt proceeds in 2010. The county's additional economic underpinnings of services, healthcare, education and government help mitigate these concerns. The maintenance of a solid financial cushion is key to preserving current credit quality.

The county has maintained strong general fund reserve levels through fiscal 2007 but has since drawn down reserves primarily for one-time capital projects. Fiscal 2008 posted a $4.1 million draw down due mostly to almost $3 million in capital projects, resulting in a still strong reserve level equal to 26% of spending. For fiscal 2009, the county projects another $2.4 million use of reserves, due to capital outlays, a transfer to the self-insured health insurance fund, and a $500,000 shortfall in sales taxes. However, the county anticipates issuing approximately $4.5 million in COs in the first quarter 2010, $3 million of which is earmarked for reimbursement to the general fund for recent capital projects. The county has a reserve fund target of 15% to 25% of general fund expenditures. After inclusion of an estimated $3.8 million in deferred ad valorem property tax revenues collected October through December 2009, the general fund balance would exceed 30% of spending even before reimbursements from the COs.

The county has adopted a balanced budget for fiscal 2010, based on level property tax rates and a sales tax growth projection of 2.7% which may be optimistic. The budget does not include any personnel cuts but does impose numerous employee benefit reductions, frozen salary levels, and departmental budget cuts.

The county's direct debt levels are very low at $76 per capita and 0.10% of taxable assessed value (TAV) while overall debt levels are above average but manageable at $3,293 per capita and 5.8% of TAV. Amortization of debt is very rapid with 81% of debt paid off in five years.

Victoria County is located between Houston and Corpus Christi and has an estimated 2008 population of 86,755. The city of Victoria is the county seat and is located 30 miles inland of the Gulf of Mexico. The city is a regional trade and retail center of the seven-county region known as the 'Golden Crescent'. The county has benefited from the city's emergence as a regional service and supply center for heavy industry, including plastics manufacturing and petrochemicals. Development of the service and retail sectors offers economic stability and diversification and complements the county's industrial base. The largest employers as of fiscal 2008 include Victoria ISD (2,100 emp.), Formosa Plastics (1,500) Citizens Medical Ctr. (1,382) and The Interplast Group (1,200). The county unemployment rate jumped from 4.2% in September 2008 to 8.1% in September 2009, but currently trails the state (8.3%) and national averages (10.2%).

The county has had historically modest but stable TAV growth with a 7.7% compounded annual growth rate (CAGR) between the years 2006 and 2010. Growth in TAV was only 0.60% for 2010 due primarily to industrial value declines as a result of assessed value protests. The fiscal 2008 top 10 taxpayers represent 14.5% of the total property tax base, led by Invista (chemical manufacturer) at 7%. Wealth levels are just below state levels and lower than national averages, but foreclosure rates are significantly below national levels.

Additional information is available at www.fitchratings.com.

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